There are plenty of reasons to believe that small businesses aren't getting
the credit they need. In the last three months of 2009, business lending at
smaller banks, which tend to cater to smaller companies, was down at a 13% annual rate, according to the Federal Reserve. Not only are loans harder
to come by, but they're also more expensive. That has the potential to slow
down economic recovery, since firms that can't borrow often can't expand.
Policymakers have responded with a number of programs to boost
small-business lending, including an Obama Administration proposal to
repurpose $30 billion of bank-bailout money to spur more business lending at
community banks.

Talk to business owners, though, and the picture is a lot more
complicated. A poll conducted at the end of last year by the National Federation
of Independent Business, a small-business trade group, found that companies were
overwhelmingly more concerned about slow or declining sales than access to credit. A full 51% of businesses cited sales as their top concern,
while only 8% cited the ability to borrow money. An additional 22% cited uncertainty as their biggest worry. In unstable times, even healthy companies are unlikely to want to take on debt. (See the top 10 bankruptcies.)

Those that are in the market to borrow are often doing so with ease. In Atlanta, Rob Hale didn't have any problem getting a
loan. The president and CEO of United Controls International, which tests
circuit breakers and fuses for nuclear power plants, actually had banks
competing to lend him money to buy a new building. "I've never seen an
environment like this," he says. "Banks are clamoring for my businesses." He now has three offers on the table and
is going back to each of the banks, which have started lowering interest
rates and removing loan covenants in order to win his business.

The reason: Hale's company is in good financial shape and part of a booming
industry. Even though the U.S. hasn't seen a new nuclear power plant since
1996, there are now dozens on the drawing board, and the Obama Administration
has announced loan guarantees to build new plants. United Controls is also
seeing a spike in business from overseas countries such as Korea,
Taiwan, Spain and Brazil. In other words, coming out of the recession,
Hale's firm is a commodity in short supply: a top-notch credit risk.

In Austin, Texas, Edward Lette, CEO of the Business Bank of Texas,
is scouring the business community for companies to lend to. He's not having
much luck. "I'm struggling to find qualified credits," says Lette. "Many
times, people come in and apply for loans, but it's not to grow their
business  it's to get their business out of the hole they're in because
they've already borrowed way too much." On more than one occasion, Lette has
recommended that instead of a loan, a business owner contemplate bankruptcy.

Now, it is true that credit standards for business
lending haven't tightened, as illustrated by the Federal Reserve's monthly loan-officer
survey. And as Fed governor Elizabeth Duke
pointed out in a speech on Feb. 26, those tougher standards could be having
a disproportionate effect on small businesses. "Credit conditions may be
particularly tight for small businesses because their finances are, in many
instances, very closely intertwined with the personal finances of their
owners," she said. For example, the owner of a small business who also owns a house may see a lower home price weigh down the creditworthiness of his
business. (See which businesses are bucking the recession.)

But in many ways, the tightened credit make sense. We are living in the aftermath of the
greatest credit bubble since the Roaring '20s, after all. Standards were too
loose and had to change. At the same time, problems at many banks are
contributing to the new, more conservative lending stance. Souring
real estate loans are driving dozens of banks out of business. Since
the beginning of the year, the Federal Deposit Insurance Corporation has taken
over 30 failing institutions.

So what happens as the economy rebounds and companies start to pull
themselves together? Once firms are in better shape and the recovery instills confidence in businesses to start investing again, will they be able to go
back to banks and start borrowing?

That's actually when we might start to see a problem, according to Raj Date, executive director of the Cambridge
Winter Center for Financial Institutions Policy. In congressional testimony
on March 2, he made the case that as the demand for loans from creditworthy borrowers picks back up, there might not be enough lending to go around. Part of that has to do with many small banks' capital constraints  money they would lend is still tied up in those real estate loans. Just as important, though, other places business owners have looked to for funding in recent years, like home-equity loans and credit lines from nonbank finance companies like CIT, aren't likely to bounce back to their former glory anytime soon.

In other words, the real small-business credit crunch may be yet to come.